Indian Railways should seek innovative financing: Vinod Rai

Indian Railways cannot improve its infrastructure unless it adopts innovative forms of financing and more positive collaboration with the private sector, chairman of the Banks Board Bureau Vinod Rai has said.

Indian Railways' massive infrastructure programme includes redevelopment of 408 major stations through private sector participation via online auctions.

"Unless it (Indian Railways) can involve innovative forms of financing and more positive collaboration with the private sector, its lack of infrastructure would only increase," said Rai in a report published by the Institute of South Asian Studies (ISAS), a Singapore-based think-tank.

He noted that Railways' concerted efforts in the recent past to expand, modernise, decentralise decision-making, improve efficiency, meet customer expectations, move to clean energy and introduce greater transparency through e-tendering.

The rationale for doing projects in PPP (Public Private Partnership) format appears to be resource constraint rather than this route being a more efficient and cost effective service delivery mechanism, said Rai who is also a Visiting Senior Research Fellow at ISAS.

The Railways need to have a clear roadmap - a blueprint for projects to be done in PPP format and selected on the basis of their amenability to PPP and driven by value for money philosophy rather than a resource augmenting measure, he said.

The private sector should be invited as it has greater flexibility in adjusting its resources, Rai suggested.

Private firms, when trusted with a long-term contract and a wider scope of work, can balance expenditures over the project life and make effective trade-offs between investment, maintenance and operational costs subject to environmental, social and economic considerations, he said.

Also, large firms have continuous access to latest technology as they are massively investing in research and development and constantly improving the quality and efficiency of construction techniques, processes and equipment, he pointed out.

Railways has addressed these issues through a framework created to attract private investment, noted Rai but suggest that the framework provides following five models for implementation of various types of rail-connectivity and capacity augmentation projects.

The financial position of the Indian Railways needs to be buttressed due to the triple onslaught of a fall in revenues, a sudden spike in expenditure due to recommendations of the Seventh Pay Commission, and an increasingly unsustainable interest burden on market borrowings, the former Comptroller and Auditor General of India pointed out.

The operating cost is almost creeping up, he added.